22 November 2014

Antitrust fine and Jones Act help spell the end for debt-ridden Horizon:

The fallout from the demise of debt-ridden US domestic carrier Horizon Lines comes under the microscope of Alphaliner this week, along with the restrictions of a 1920 US law that was designed to protect the US maritime industry, but seems to have had a big hand in its fate.

The analyst said that Horizon’s exit will leave six carriers operating liner trades under the US Jones Act – a law requiring that all goods transported by water between US ports are carried on US-built and flagged ships crewed by US citizens.

Horizon Lines announced at the end of last week that subject to regulatory approval it intends to sell its business to rival Matson, including its Alaska operations, and its Hawaii service to the Pasha Group – a California-based transport and logistics company that currently operates a ro/ro service to Hawaii.

The Alaska deal will see three 1987-built, 1660teu vessels transferred to Matson, which the company is to retrofit with scrubbers to comply with forthcoming low-sulphur regulations.

Pasha will acquire four vessels in the 2,400-2,600teu range, which entered service from 1979 to 1981.

Separately, Horizon announced that it will close its loss-making Puerto Rico service by the end of December – thereby bringing to a close a 56-year chapter in the history of the company that was originally the domestic shipping arm of container transportation pioneer SeaLand.

Horizon’s Puerto Rico operation never recovered from the $15m price-fixing fine handed down from the US Department of Justice in 2011, and later in the same year it was forced to refinance to avoid bankruptcy.

Its departure from the trade will leave four Jones Act carriers providing connections between San Juan and the US Gulf and east coast, and this will no doubt assist to firm up rates on the route.

Moreover, Alphaliner said that two of these carriers, Tote-subsidiary Sea Star Line and Crowley, will receive purpose-built LNG-powered containerships within the next two years to be deployed on the Puerto Rico trade, mitigating the cost impact of the low-sulphur fuel ECAs coming into force from January next year.

Horizon Lines – the largest Jones Act containership operator – has a fleet of ancient fuel-guzzling ships and was unable to afford to upgrade its vessels due to the Jones Act restrictions prohibiting construction in overseas yards.

For example: a pair of 3,600teu ships ordered by Matson from the Aker Philadelphia Shipyard are reported to be costing the carrier $210m a unit – more than double the price that could be enjoyed from Asian yards.

Indeed, Horizon has just sold the oldest container ship in the world for scrap. At 46-years-old the 1,442teu Horizon Discovery is at least twice the current average age for container ship scrapping –  many boxships below 20-years are being despatched to breakers yards as they are no longer economically competitive.

Meanwhile, calls continue for the Jones Act – designed to protect the US maritime industry from competition – to be relaxed on the basis that the 1920 legislation actually harms business and the US economy.

In fact a 2013 report by the World Economic Forum described the Jones Act as “the most restrictive of global cabotage laws and an anomaly in an otherwise open market like the United States”.

Source: the loadstar. 18 November 2014

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